Greenspan Strikes Out Again

Alan Greenspan’s testimony before the Congressional Financial Crisis Inquiry Commission last week had a particularly annoying ring to it. They were asking him for suggestions on restructuring the financial services industry to avoid a future collapse. That’s like asking the pitcher who gave up a record number of home runs to pitch the opening game of the World Series.

(Forgive the sports analogy, but the new baseball season is beginning, and where I live in Chicago that’s as obsessive a pastime as self-flagellation is in Washington, DC!)

In his testimony, Greenspan pointed out that early in the decade, the Fed put out “guidelines” for risky subprime loans. Funny, all I can remember is writing a column wondering what he was smoking when, as Fed chairman, he advised consumers to take out adjustable rate mortgages.

Well, sure, if the nation’s chief money man suggested something a bit less conservative than paying down your mortgage every month, why wouldn’t you listen to the slick-talking mortgage broker who promised you interest-only low payments so you could take a vacation or re-do the kitchen?

The Fed chairman’s advice opened the door for the mortgage broker con man to walk through. And as late as 2005, Greenspan denied there was a “housing bubble,” telling the Joint Economic Committee: "Home price declines…, were they to occur, likely would not have substantial macroeconomic implications."

Now, this isn’t the first time I’ve questioned Mr. Greenspan’s ability to see clearly into the near future. Back in 1990, when Greenspan said he “didn’t see a recession on the horizon,” I asked what planet he was standing on.

Then there’s the huge irony that he once advocated the gold standard (back in the early 1960s when he was an Ayn Rand devotee). Yet ultimately, he created the economic circumstances that were used to justify the greatest expansion of money and credit—actions that ultimately are likely to destroy the dollar.

Even during the heyday of the Greenspan Fedocracy, I reminded readers of his track record as a private economist in 1984, when he became a consultant to the now-infamous Lincoln Savings & Loan, and its chairman, Charles H. Keating, Jr. Greenspan wrote a letter to the San Francisco Fed extolling Lincoln’s virtues and recommending exemption from some regulatory requirements.

Less than five years later, the government took Lincoln over in one of the largest and most memorable of the S&L disasters (which also dragged the “Keating Five” senators into the mud, including Sen. John McCain).

Dogged by that earlier relationship, Greenspan acknowledged his lack of insight, saying: ''I was wrong about Lincoln. I was wrong about what they would ultimately do and the problems they would ultimately create.''

My point is simple—and it’s not about continuing to bash Alan Greenspan. But, if Congress wants to figure out how to avoid the next financial crisis, it shouldn’t be asking the guy who could only belatedly admit that he “couldn’t see it coming.”

If they really want to hit it out of the ballpark, why not give the bat to the guy who is batting 1,000 for a lifetime average: Paul Volcker. He’s been hanging around the on-deck circle since the Obama administration took over more than a year ago, although the president did endorse his ideas to limit banks’ abilities to take on too much risk.

But few remember his heroic rescue of the dollar and our financial system—even though it took slugging the prime rate up to 21-1/2% to do it! Why not give a true Hall of Famer a turn at bat?